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Exam 1: Introduction to Taxation

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Question 31

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Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual.In the current year, Flycatcher earned $100,000 net profit and paid a dividend of $10,000 to each shareholder.Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 33% marginal tax bracket and Pasqual is in the 15% marginal tax bracket.With respect to the current year, which of the following statements is incorrect?

A) Flycatcher cannot avoid the corporate tax altogether by distributing all $100,000 of net profit as dividends to the shareholders.
B) Nancy incurs income tax of $1,500 on her dividend income.
C) Pasqual incurs income tax of $1,500 on his dividend income.
D) Flycatcher pays corporate tax of $22,250.
E) None of the above.

F) A) and E)
G) A) and B)

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Question 32

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Two persons who live in the same state but in different counties may not be subject to the same general sales tax rate.

A) True
B) False

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Question 33

Multiple Choice

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Taxes not imposed by the Federal government include:

Federal excise taxes that are no longer imposed include:

A Federal excise tax is no longer imposed on admission to theaters.

Mona inherits her mother's personal residence, which she converts to a furnished rental house.These changes should affect the amount of ad valorem property taxes levied on the properties.

The corporate marginal income tax rates range from 15% to 39%, while the individual marginal income tax rates range from 10% to 39.6%.

Don, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in the current year.The Tax Court has held that $200,000 represents unreasonable compensation.Don must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.

Pablo, a sole proprietor, sold stock held as an investment for a $40,000 long-term capital gain.Pablo's marginal tax rate is 33%.Loon Corporation, a C corporation, sold stock held as an investment for a $40,000 long-term capital gain.Loon's marginal tax rate is 35%.What tax rates are applicable to these capital gains?

Juanita owns 60% of the stock in a C corporation that had a profit of $200,000 in the current year.Carlos owns a 60% interest in a partnership that had a profit of $200,000 during the year.The corporation distributed $45,000 to Juanita, and the partnership distributed $45,000 to Carlos.With respect to this information, which of the following statements is incorrect?

An inheritance tax is a tax on a decedent's right to pass property at death.

Both economic and social considerations can be used to justify:

A provision in the law that compels accrual basis taxpayers to pay a tax on prepaid income in the year received and not when earned is consistent with generally accepted accounting principles.

Unlike FICA, FUTA requires that employers comply with state as well as Federal rules.

A characteristic of FUTA is that:

Rajib is the sole shareholder of Robin Corporation, a calendar year S corporation.In the current year, Robin earned net profit of $350,000 ($520,000 gross income - $170,000 operating expenses) and distributed $80,000 to Rajib.Rajib must report Robin Corporation profit of $350,000 on his Federal income tax return.

A characteristic of FICA is that:

In cases of doubt, courts have held that tax relief provisions should be broadly construed in favor of taxpayers.

Before the Sixteenth Amendment to the Constitution was ratified, there was no valid Federal income tax on individuals.

On transfers by death, the Federal government relies on an estate tax, while states impose an estate tax, an inheritance tax, both taxes, or neither tax.